The US employment report at the end of this week will have even greater significance than normal as it will be the last labour market data that both the Federal Reserve and investors study together before a possible rate decision later on this month (I’m sure the U.S central bank has access to more data that the rest of us mortals are not privy to). We already have it on record from key Federal Reserve decision makers that there’s a ‘50-50’ chance of a rate hike in September. For the record, economists expect 220,000 additions to the labour force, which compares to 215,000 additions in July, with the unemployment rate to marginally decline from 5.3% to 5.2%. Barring some negative surprise it’s hard to see the US central bank not gaining confidence from the continued robust expansion of the labour market, and rightly so.
I suspect that we are probably at a stage in the macro cycle where a negative surprise will cause a far bigger reaction from the market than a positive one. This is because of the elevated levels of volatility we are currently experiencing; poor data coming out of China, Japan and Korea; and also the poor ISM Manufacturing PMI data published yesterday afternoon in the United States. One suspects that market watchers have taken a few hits to their confidence in global growth recently, so a significant labour market disappointment in the United States is not what the doctor ordered.
In my last blog I was rather blasé about the Korean export data disappointment, which was misleading. South Korea along with Singapore are often regarded as bellwether economies. They both correlate highly with global growth and sit right at the heart of the global supply chain. These economies should be prospering if the global economy is hale and hearty, but the fact that the Korean export data (-15% versus -10% expected) was so bad could be a symptom of wider significance. When I wrote yesterday’s blog my belief was that there are Chinese and Japanese causes for such a steep export contraction, but that is not backed up by facts yet. And so, for now, the jury is out and we need to take especial note of big data events like the non-farm payrolls report in the U.S which is published on Friday.
For today, asset markets continue to gyrate as the ripple effects of the recent market volatility continue to play out. Today crude oil continues to give up some of the recent bounce moving back to sub $50 for Brent. Personally I will stick with my view that last month’s low could be a base for a considerable time to come, if it is violated that will take on great significance in my view – I should point out that may oil traders are looking for $25 oil in the next couple of years, I don’t have anything against that view, I just think the recent low is like to be in place for some time.. The dollar dominates today, and equity markets are rallying which is no surprise given the paradigm I often talk about. While I continue to believe that EUR/GBP can head higher from these levels, that might not be the case today.
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